Germany Struggles to Regain Lost Pandemic Capacity

It’s 2023, and most of the least recovered airline markets are still found within East Asia. Hong Kong’s scheduled seat departures are 63 percent fewer this quarter than they were in the first quarter of 2019, according to Diio by Cirium. From Taiwan, seat capacity is down 42 percent. Thailand is down 32 percent, Malaysia 26 percent, Singapore 25 percent … and so on. But what about markets outside of Asia? Which has been slowest to recover?

The answer to this question — ignoring small markets with fewer than 2 million quarterly seats — happens to be what used to be the world’s fourth largest airline market. Germany, with roughly 24 million seats scheduled this quarter, is now the world’s eighth largest country market, a full 32 percent smaller than it was in early 2019. By contrast, the U.S. market (based on first quarter schedules) is 1 percent larger. India is 3 percent larger. The UK is only 10 percent smaller. Even Finland, whose airline market had heavy exposure to Russian airspace, is only 28 percent smaller. Nor is this a momentary first quarter fluke. Germany’s seat counts were down 27 percent last summer (third quarter 2022 versus 2019). And while the decline eases to 19 percent as things stand now for next quarter, that’s still a steeper decline than almost all major markets ex-Asia.

What’s wrong with Germany?

The most obvious explanation is the country’s heavy reliance on corporate fliers, and by contrast, its relatively low volume of inbound tourism. Globally, the post-pandemic air travel resurgence has been dominated by leisure traffic, boosting the fortunes of markets like Greece and Spain but doing much less for markets like Germany. Europe’s largest economy, rather than relying on tourism, relies instead on manufacturing, a sector hard hit by spiking energy costs linked to the Russia-Ukraine conflict. German manufacturers, including global auto giants like Volkswagen and Daimler, have simultaneously grappled with parts shortages (like semiconductors) and weakening demand from China, a critical export market. Business Travel News, which publishes an annual ranking of the top corporate travel spenders, features the German conglomerate Siemens as number 12 worldwide on its most recent list, just behind Apple. SAP, the software giant based near Frankfurt, ranks number 74. Recession-threatened companies like these are surely under pressure to cut their travel budgets.

Germany’s airline market, meanwhile, had considerable direct exposure to Russia. Aeroflot and its Pobeda subsidiary, for example, once operated more than 20 different routes to Germany. On the eve of Russia’s Ukraine invasion, Lufthansa flew to Moscow from both Frankfurt and Munich, and from Frankfurt to St. Petersburg as well. All of this is gone now, contributing to Germany’s post-Covid decline in seat capacity. The German-Ukraine airline market was itself rather sizeable, contested by both Ryanair and Wizz Air.

Speaking of low-cost carriers, Ryanair has abandoned many German markets, including Dusseldorf, Frankfurt, Munich, and Stuttgart. Even more dramatic is EasyJet’s near total loss of interest in Germany, with first quarter seat capacity barely 20 percent of what it was pre-crisis. Wizz Air, though its seats from German airports are up a lot from 2019, left the important Frankfurt market in 2020.

But it’s Lufthansa and its subsidiary airlines that account for the majority of Germany’s lost seats. To be clear, Lufthansa is performing well financially, reminding in its latest earnings call that just a quarter of its traffic originates in its home country. For Germany’s airports though, Lufthansa’s draconian capacity cutting is painful. Based on the latest data from the German Airports Association (Flughafenverband), passenger volumes for the month of November were down 28 percent nationwide, relative to November 2019. Frankfurt, thanks largely to recovering intercontinental markets like North America, suffered a November drop that was somewhat less extreme (down 19 percent). Munich fared worse (down 25 percent). Dusseldorf and Berlin were worse still (down 37 percent and 39 percent, respectively).

Airports with the most domestic exposure are suffering most. Incredibly, Germany’s domestic airline market is less than half the size of what it was pre-pandemic. Diio figures show that about 61,000 domestic flights were scheduled in first quarter 2019. This quarter, airlines plan to fly just 29,000. EasyJet is a big reason why, fleeing the German domestic market entirely (it was once a big player). This and other retreats leave Lufthansa Group as the only sizable player left in the market, and it too has slashed domestic capacity. The explanation here is straightforward: It’s about Germany’s decision, made before the Covid crisis, to sharply increase shorthaul aviation taxes. Other European countries have moved in this direction as well, eager to substitute air travel with rail travel to cut carbon emissions. To be clear though, Germany’s international flights — and even longhaul international flights — are likewise far off their pre-pandemic marks. The declines just aren’t quite as exaggerated as the domestic drop.   

There are, for sure, some airlines that have grown their footprints in Germany post-pandemic. Wizz Air, as mentioned, is one, expanding its presence in Hamburg and Memmingen, for example, more than offsetting the impact of its withdrawal from Frankfurt. Turkish Airlines, having grown its seat capacity to Germany by 20 percent from the first quarter of 2019, is now the country’s third busiest airline after Lufthansa and Ryanair. Also from Turkey, Pegasus Airlines has expanded to Germany. United, a close Lufthansa ally, has added new routes including Denver to both Frankfurt and Munich. Aegean, Vueling, and Qatar Airways are some other carriers larger in Germany now than they were four years ago.  

Four years from now, will Germany’s airline industry still be smaller than it was before Covid? The climb back will be steep.